Foreword and Acknowledgements
The annual Agricultural Outlook is prepared jointly by the Organisation for Economic Co-operation and Development (OECD) and the Food and Agriculture Organization (FAO) of the United Nations. The projections and assessments provided in this report are the result of close co-operation with national experts in OECD countries, but also in several countries that are not members of the OECD, reflecting the combined knowledge and expertise of this wide group of collaborators. A jointly developed modelling system, based on the OECD’s Aglink and FAO’s Cosimo models, facilitates consistency in the projections. The fully documented Outlook Database, including historical data and projections, is available through the OECD-FAO joint website . www.agri-outlook.org
Outlook in Brief
Agriculture has experienced a number of severe shocks in recent years with record high oil prices, commodity price spikes, food security fears and resultant trade restrictions, not to mention the most serious global economic recession since the 1930s. The greatest impact has been on the poor, especially in developing countries, with the world’s hungry now estimated at over 1 billion people. Agriculture has shown remarkable resilience, particularly in the OECD area, with strong supply response to high prices and with continuing, albeit dampened, demand growth during the crisis. In 2010, a degree of normalcy has returned to many markets with production closer to historical levels and demand recovering. Still, many governments remain concerned about the potential for a repetition of significant shocks to such key factors as energy prices, exchange rates, and/or the macroeconomic performance of key countries and regions, and about the consequences that such shocks have on market volatility.
The Agricultural Outlook is a collaborative effort of the Organisation for Economic Co-operation and Development (OECD) and the Food and Agriculture Organization (FAO) of the United Nations in Rome, bringing together commodity, policy and country expertise of both Organisations, and national government agencies to produce, with the aid of the Aglink-Cosimo model, a consensus view on a longer term assessment of global commodity markets. This assessment is not a forecast about the future, but rather a conditional scenario of what can be expected to happen under certain key assumptions concerning the macroeconomic environment over the coming ten years, and a continuation of current agricultural policy and trade settings around the world and specific external factors. The projections of production, consumption, stocks, trade and prices for the different agricultural products described and analysed in this report cover the years 2010 to 2019.
Price Volatility and Price Transmission
Increased interest in price volatility has been aroused by the rapid rise in food commodity prices in 2007/08, and their subsequent fall. As in former periods of rapid price change, there are different implications for various agents across the food chain. Producers (sellers) clearly benefit and consumers (buyers – food or feed) lose from a rise in prices; the benefits are reversed for a fall in prices. These variations also have different implications for producers and consumers in developed versus developing countries.
Macroeconomic and Policy Assumptions
As this year’s Agricultural Outlook is being prepared, the macroeconomic situation has improved considerably compared with the same period last year. At that time, the world was undergoing its greatest economic downturn since World War II with persistent and frequent downward revisions to the short term economic Outlook from continuing turmoil in the financial sector that spilled to the real economy. However, with policy interventions in major economies through massive fiscal stimulus to shore up domestic demand, loose monetary policies that kept interest rates at very low levels and massive infusion of liquidity to help shore up the balance sheets of the banking and manufacturing sectors, the worst fears from that time were averted.
The economic downturn had direct consequences on biofuel markets. From mid-2008 to mid-2009, weaker energy prices caused a reduction in profit margins of biofuel plants which together with the financial crisis delayed private investments around the world. This associated with reduced policy support for biofuels in some countries and concerns regarding the sustainability of biofuel production has contributed to slow down the pace of expansion of the industrial capacity of the sector. When compared to their peak 2008 levels, ethanol and biodiesel prices decreased, respectively, by 6% and 26% in 2009.
The year 2009 marked a slow return to a more balanced situation in cereal markets. International prices, which in the previous year climbed to unusually high levels, driven by tight market conditions, fell following a significant improvement in global supply. The above-average cereal production in 2009 and large world inventories, especially among major exporters, weighed to depress international cereal prices, a trend that is continuing in 2010. The FAO Cereal Price Index averaged 174 points in 2009, down 27% from the all-time high average (in nominal terms) of 239 points in 2008.
Oilseeds and Oilseed Products
In the last few years, considerable movement has interrupted the historically flat price trend for oilseeds, oils and meals, especially when prices for all three product groups rose dramatically in mid 2008. The price surge was caused by an unusually tight supply and demand situation, spill-over effects from related grain markets as well as a growing importance of biofuel demand and of macroeconomic factors. Even though the rise was followed by a sharp fall in prices towards the end of 2008, values for oilseeds and derived products have since moved at levels above those prevailing prior to the general increase.
The world sugar market is experiencing considerable turbulence and stress at the start of the Outlook. The sugar market is currently facing a second year of global deficit with a wide gap remaining between world consumption and production that has reduced stocks to very low level). World sugar prices have rallied strongly in response to tightening supplies, and rising imports, to reach 29 year highs in February 2010 (Figure 7.1). Prices have since fallen back to around the pre-peak levels of mid-2009 on expectations of improved supply prospects, particularly in Brazil. The past several months have also witnessed considerable volatility in the white sugar premium. The premium advanced rapidly in the second half of 2009 on fears of low stocks and tightness of export supplies of white sugar to reach over USD 146/t in January 2010, the highest nominal margin between raw and white sugar prices since July 1995.
The economic downturn triggered by the financial crisis severely impacted the meat sector. Falling purchasing power and difficult access to credit affected both demand and supply. All meats were affected, although beef suffered the most compared to others, as consumers preferred cheap beef cuts and cheaper alternative sources of animal proteins. The economic crisis also accelerated structural changes in the meat industry, as evidenced by the numerous mergers and acquisitions recorded last year, of which the most notable was Perdigao and Sadia that formed the world’s largest poultry processor by market value. The structure that results from this crisis, characterised by increasing economies of scale, is expected to speed the globalisation of meat trade, as large scale operations both in production and marketing are better suited to exploit global agribusiness growth opportunities, through a larger portfolio of meat origins and meat types. In addition, economies of scale are anticipated to increase the ability of the industry to manage risk through spatial and meat product diversification, as well as through hedging on futures markets.
International dairy markets have experienced a dramatic rise and fall in recent years. After a strong run-up in prices, the market situation reversed in the course of 2008. Demand retreated while supply increased in reaction to strong price incentives. This coincided with the commencement of the global economic crises and by early 2009 prices fell by half from mid 2008 levels. As a result, dairy product stocks started to accumulate, most importantly in the United States and the European Union. The dramatic fall in prices from the peaks of 2008 has shaken the global dairy sector. In many countries the relatively stronger market situation witnessed in previous years led to a rethinking and mobilisation of the sector’s longer term strategy (for example, the European Commission has established a High Level Expert’s Group on milk to discuss medium and longer term arrangements for the dairy sector, given the abolition of the current quota system in 2015).
This section provides information on the methodological aspects of the generation of the present Agricultural Outlook. It discusses the main aspects in the following order: First, a general description of the agricultural baseline projections and the Outlook report is given. Second, the compilation of a consistent set of the assumptions on macroeconomic projections is discussed in more detail. A third part presents an important model element that has been improved for this Outlook, i.e. the representation of production costs in the model’s supply equations.
Annex A. Statistical Tables
Annex B. Information on Food Price Changes
Glossary of Terms
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